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Income Tax Appellate Tribunal, “DELHI” ‘E’ BENCH, DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
The captioned appeal has been filed against the order of the Commissioner of Income Tax (Appeals) (‘CIT(A)’ in short), dated 25.08.2017 arising from the penalty order passed by the Assessing Officer u/s 271(1)(c) dated 22.03.2016.
As per its grounds of appeal, the assessee, in essence, has challenged the levy of penalty of Rs. 2,40,794/- imposed by the Assessing Officer and confirmed by the CIT(A).
Aviation Pvt. Ltd. vs. ITO] A.Y. 2010-11 - 2 -
Briefly stated in the scrutiny assessment, the Assessing Officer made certain additions/disallowances as under: - Disallowance on account of legal (1) and professional Rs. 15,000/- (2) Legal and professional expenses Rs. 6,05,470/- capitalized Rs. 1,58,800/- (3) Disallowance u/s 40A(3) 4. As a sequel thereto, the Assessing Officer imposed penalty of Rs. 2,40,794/- on the aforesaid addition aggregating to Rs. 7,79,270/-. In the first appeal the assessee did not get any relief from the CIT(A) against the imposition of the penalty.
Aggrieved, the assessee preferred appeal before the Tribunal. None appeared for the assessee at the time of hearing. Accordingly, matter was proceeded ex parte.
We have taken note of the various orders in the quantum proceedings and the penalty proceedings passed by the AO and the CIT(A) and also the material placed in the case records.
6.1 The Assessing Officer has, inter alia, imposed penalty for disallowance under the head “legal and professional expenses amounting to Rs. 6,05,470/-“. It is noticed that the corroboration of expenditure has not been disputed per se. What has been disputed is the characterization of expenses. As per the assessee, the expenditure is Revenue in nature as attributable to the professional fees paid for Artscan for building, designing and interior. The Revenue on the other hand, believes the same to be capital expenditure and thus, not deductible from the taxable income.
6.2 In the backdrop, we take note of the judgment rendered in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 (SC), wherein it was observed that because the assessee had claimed the expenditure, which came was not accepted or was not Aviation Pvt. Ltd. vs. ITO] A.Y. 2010-11 - 3 - acceptable to the Revenue, that by itself could not attract penalty u/s 271(1)(c). It was essentially held that imposition of penalty for such types of disallowances is not the intendment of legislature. Thus, tested on the aforesaid judicial view, the penalty u/s 271(1)(c) is clearly not justified merely on account of disallowance. The action of AO is thus cancelled.
The disallowance out of legal and professional expenses Rs. 15,000/- is stated to be without any corroborative evidence warranting imposition of penalty. When we note circumstantially, the total legal expenses stand at Rs. 25,98,880/-. The assessee has large amount of brought forward losses of Rs. 60,20,188/- and returned a ‘NIL’ Income. Thus, when seen contextually, such small disallowances should not lead to imposition of onerous penalty merely alleging absence of any concrete evidence. The penalty of this disallowance is thus, deleted.
The penalty has been also imposed on disallowance of Rs. 1,58,800/- u/s 40A(3) of the Act. The disallowance has been carried out on the ground that expenses amounting to Rs. 1,58,800/- was incurred in cash which are above 20,000/- under the head “repairs and maintenance of vehicle”. The deeming provisions of section 40A(3) was thus invoked and penalty was imposed and confirmed. The bona fides of expenses incurred has not been questioned by AO. The disallowance has been carried out merely because the cash expenses exceed specified limit.
We see no justification in the imposition of penalty on such disallowances under the deeming provisions. The penalty is thus deleted.
Aviation Pvt. Ltd. vs. ITO] A.Y. 2010-11 - 4 -
The appellate order of the CIT(A) is thus set aside and the Assessing Officer is directed to delete the penalty imposed in question.
In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 21/12/2021